global economy | March 20, 2012

Why Nations Fail Co-Author Daron Acemoglu "As Hot as Economists Get."

Daron Acemoglu is “about as hot as economists get,” writes The New York Times Magazine in a recent feature on the Why Nations Fail co-author. In the book, Acemoglu addresses the big question that has perplexed economists for ages: why are some countries rich while others are poor? He tells the Times Magazine that poverty stems not just from a lack of market freedom, or overpopulation, or a lack of centralized government. For Acemoglu, poor countries are ones where the average citizen does not share in the overalrl growth of the national economy. Put more bluntly, the slogan "the true value of a nation is its people" is actually correct.

Here's an example of Acemoglu's thesis from The Times Magazine article:

Consider Acemoglu’s idea from the perspective of a poor farmer. In parts of modern sub-Saharan Africa, as was true in medieval Europe or the antebellum South, the people who work the fields lack any incentive to improve their yield because any surplus is taken by the wealthy elite. This mind-set changes only when farmers are given strong property rights and discover that they can profit from extra production. In 1978, China began allowing farmers to benefit from any surplus they produced. The decision, most economists agree, helped spark the country’s astounding growth.

Acemoglu and his Why Nations Fail collaborator James Robinson aren't simply arguing that incentives matter—they're arguing that if countries do not give their poor any possibility for social mobility, whether "through property rights, a reliable judicial system, or access to markets", their economic engines will be stuck in neutral. This realization means that the current foreign aid strategy of one-off programs or monetary gifts are essentially useless if given to a country that fails to invest in their poor and vulnerable. The real focus of aid should be on deep political and economic change.

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